The impact of production offshoring on the skill composition of manufacturing firms: Evidence from Italy

In this work we explore how the international outsourcing of production impacts the skill composition of employment within Italian manufacturing firms. In particular, our aim is to assess if the choice to offshore production activities to cheap-labour countries implies a bias in the employment of skilled workers relative to unskilled ones. Using a balanced panel of firms covering the period 1995-2003, we set up a counterfactual analysis in which, by using a difference-in-differences propensity score matching estimator, we compare the dynamics of skill demand for treated and control firms while addressing the possible problem of selection bias. Our results identify a “potential” skill bias effect of production offshoring. In particular, we find that treated firms tend to show an upward shift in the skill ratio with respect to the counterfactual sample, but coefficients are not significantly different from zero. When we look at the elements of the skill ratio separately, we find that the skill bias is driven by a fall in the employment of production workers (blue collars), rather than by the increase in the employment of nonproduction workers (white collars), thus providing further evidence on the unskilled labour-saving nature of international outsourcing.